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Edited version of your private ruling
Authorisation Number: 1012512248530
Ruling
Subject: Assessable income
Question
Is the compensation payment you received included in your assessable income?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You were awarded a sum as compensation for suffering endured as a result of being a victim of crime.
The sum is in relation to personal suffering and does not include any amount for loss of income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Paragraph 118-37(1)(b)
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Other characteristics of income that have evolved from case law include receipts that:
· are earned
· are expected
· are relied upon, and
· have an element of periodicity, recurrence or regularity.
In your case the payment you received was compensation for suffering caused by being a victim of crime.
The payment does not have the characteristics of ordinary income and was not earned by you and did not relate to services performed. The payment is also a one-off payment and does not have an element of recurrence or regularity. Although the payment can be said to be expected and perhaps relied upon, this expectation arises from the suffering resulting from being a victim of crime.
Therefore the payment is not income according to ordinary concepts and is not assessable under section 6-5 of the ITAA 1997.
Capital Gain
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but may be assessable under another provision are called statutory income.
Receipt of a lump sum payment may give rise to a capital gain (statutory income). However paragraph 118-37(1)(b) of the ITAA 1997 disregards payments or receipts for capital gains purposes where the amount relates to compensation or damages a person receives for any personal wrong, injury or illness.
In your case, the payment was made to you as a result of a personal wrong, and as such the payment will be exempt from capital gains tax under paragraph 118-37(1)(b) of the ITAA 1997.